Infrastructure concession agreements are dense, negotiated codes: definitions carry money, and few definitions carry more than “Total Project Cost.” When a concessionaire terminates and claims termination payment, that defined figure often decides hundreds of crores. A Delhi High Court judgment of 28 September 2026 confirms that an arbitral tribunal which departs from such a definition does not commit a mere error of interpretation — it commits patent illegality, and the award falls to that extent.
The commercial background
The appellant concessionaire contracted with NHAI to four-lane a highway stretch on a Design, Build, Finance, Operate and Transfer basis. Toll collection — the concessionaire’s revenue stream — was suspended for a prolonged period during a farmers’ agitation, compounded by the pandemic. The concessionaire terminated the agreement and sought termination payment exceeding Rs. 1,347 crore. A three-member arbitral tribunal awarded Rs. 911.13 crore.
NHAI challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The single judge set aside the two principal claims, holding the computation had to respect the agreement’s definition of Total Project Cost — Rs. 650 crore. The concessionaire appealed under Section 37.
The Division Bench’s holding
Justices Anil Kshetarpal and Shail Jain dismissed the appeal on 28 September 2026, affirming the partial setting aside. Three propositions anchor the judgment:
The definition was a ceiling
The concession agreement defined Total Project Cost, and the termination payment formula was keyed to it. The definition operated as an express contractual limit on the tribunal’s computation.
The disaggregation letter could not enlarge it
The tribunal’s reliance on a disaggregation letter to lift the figure from Rs. 650 crore to Rs. 1,045.55 crore impermissibly displaced the negotiated definition with extrinsic material.
Rewriting is patent illegality
A tribunal may interpret ambiguous language; it may not reconstruct the bargain. Crossing that line takes the award outside permissible arbitral latitude and into Section 34(2A) territory.
The doctrinal frame
| Ground | Scope | Application here |
|---|---|---|
| Interpretation of ambiguous terms | Tribunal’s plausible view protected | Not this case — the term was defined |
| Patent illegality (S. 34(2A)) | Illegality going to the root, on the face of the award; domestic awards only | Engaged — defined ceiling overridden |
| Ignoring contract terms (S. 28(3)) | Tribunal must decide in accordance with the contract | Reinforced the conclusion |
The award was not annihilated wholesale. The offending claims were severed and the payment capped by reference to the contractual figure — an approach consistent with the growing acceptance of partial setting aside where good and bad parts of an award are separable.
What contract and disputes teams should take away
The judgment strengthens predictability in public-infrastructure arbitration: the bargained ceiling holds, however sympathetic the claimant’s losses. Risk events like toll suspensions must be addressed through the contract’s own mechanisms, not through award-stage enlargement of defined costs.
This article is for general information only and is not legal advice. Award challenges are strictly time-bound; parties should obtain advice on their own matter.
Frequently Asked Questions
What was the dispute?
A concessionaire engaged under a DBFOT model concession agreement for four-laning a highway terminated the agreement after prolonged toll suspension during a farmers’ agitation and the COVID-19 period, and claimed termination payment of about Rs. 1,347.53 crore. The arbitral tribunal awarded roughly Rs. 911.13 crore.
What happened in the Section 34 challenge?
The single judge set aside the principal claims, holding that the termination payment had to be computed on the contractually defined Total Project Cost of Rs. 650 crore, not the enlarged figure of about Rs. 1,045.55 crore which the tribunal had accepted on the strength of a disaggregation letter.
Why did the Division Bench agree?
Because the contract supplied an express ceiling. By displacing the defined figure through extrinsic material, the tribunal effectively rewrote the bargain — conduct outside the latitude allowed to arbitrators and squarely within the “patent illegality” ground under Section 34(2A) for domestic awards.
Does this weaken arbitration?
No. Courts continue to defer to plausible interpretations of ambiguous terms. The line crossed here was different: an unambiguous, defined term was overridden. Deference protects interpretation, not reconstruction.